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Warning Sign For P&G Chief? Ackman Can't Wait To Meet Him

Hedge fund manager Bill Ackman had a lot of nice things to say about Procter & Gamble and that he thinks there are ways the consumer products giant can add value for shareholders, which one might expect given his recent investment in the company and his track record as an activist investor. He was decidedly cooler when it came to the job being done by Chief Executive Bob McDonald.

At the CNBC and Institutional Investor Delivering Alpha conference Wednesday, Ackman played coy when CNBC’s David Faber asked his thoughts on the job being done by McDonald, saying only that he looks forward to meeting him.

Aside from that Ackman had a number of positive things to say about P&G, touting the company’s global franchise and the cheap price at which his hedge fund, Pershing Square, got into the stock.

Ackman said Pershing Square owns about $1.8 billion in common shares and additional options, making up a considerable chunk of the $10.5 billion he has under management. Such a large stake makes it seem unlikely that the fund will stay silent given Ackman’s history, which he essentially confirmed Wednesday. P&G “has disappointed investors for some time, and we’ll take a hard look at adding value,” he said.

Pershing Square, which sold its stake in Citigroup to help fund the P&G purchase according to Ackman’s letter to investors summing up the second quarter, frequently advocates for change at the companies it invests in, but there are some questions about whether it can have the same impact with just a tiny stake, about 1% of the company’s $177 billion market capitalization.

Ackman dismissed those concerns. “Whether we own 1%, 5% or 15%,” Pershing Square can have a positive impact, he said, because when it pushes for change management either agrees or an eventual proxy fight lets shareholders vote on the matter.

To illustrate the point, Ackman highlighted his recent successful proxy battle at Canadian Pacific Railway. “We own 14%,” of that company, he said, “if what we proposed was wrong, we’d have gotten 14% of the vote.”

As for McDonald, if Ackman is going to push him out at P&G without a proxy fight he’ll need to do some convincing. The company’s independent directors showed support for the CEO in a filing earlier Wednesday that said the board “is overseeing a plan to return P&G results to levels that produce the best long term value for shareholders; unanimously supports the plan and Chief Executive Officer, Bob McDonald, as he leads its implementation; and is monitoring its effectiveness.”

Share of P&G were essentially flat Wednesday, up 0.1% to $64.82.

Another CEO in Pershing’s investment portfolio got a ringing endorsement from Ackman, who said he remains confident that his investment in J.C. Penney will produce strong returns and that former Apple exec Ron Johnson remains the right man to turn the company around. Ackman, who attributed the company’s struggles with a poor job communicating its transformation to stakeholders and customers, said J.C. Penney has some tough sledding ahead, but that it was the only stock in his portfolio that could return 15 times his investment because it trades at a discount to the value of its real estate and inventory. “People are marking it for dead,” he said.

As for Johnson, “he was a genius when we hired him, now people think he’s an idiot,” Ackman quipped. “A year or two from now people will think he’s a genius again.”

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